WITH the financial year-end, some lucky employees in the financial services industry will be looking forward to receiving a bonus. But this year might be a good one to practice bonus restraint.

WITH the financial year-end, some lucky employees in the financial services industry will be looking forward to receiving a bonus. But this year might be a good one to practice bonus restraint.

Your first temptation will undoubtedly be to give yourself a little something.

"We all deserve some spoiling, particularly when we have worked hard during the year," says Ralph Mupita, managing director of Retail Affluent at Old Mutual.

"But wouldn't it be more sensible and create more value if you used your bonus to pay off debt and to save a little nest egg before you spoil yourself?"

Once you have cleared your debts and are working on a cash basis, you can start thinking about investing your money for important goals, making your money work for you and not working for your creditors.

Did you know that 41percent of formally employed South Africans have no form of retirement savings?

The Old Mutual Savings Monitor research has shown that only two out of five South African households enjoy pension or provident fund membership, and only a quarter have retirement annuities.

Many people do not consider the impact of their "living for today" lifestyle in terms of retirement income.

There are two issues - living beyond our means, and spending our money on items that are not necessities. You may not be receiving a bonus but if you make use of the tax breaks, you would have so much more income to finance your retirement savings.

This is the time to top up your retirement annuity (RA).

If you've contributed less than the maximum tax-deductible amount to an RA to date, you may want to use your additional cash to top it up and enjoy the full tax benefit allowed by Sars for the new tax year. If you don't already have an RA, consider investing in one.

RAs were originally developed to give self-employed people the same incentive to save for retirement as employees of companies with pension funds.

By making the most of the tax incentive you can compliment your current pension fund savings with an additional RA investment. A good reason for this is that consumers will have to save more to secure the same financial future.

Consumers enjoyed excellent returns during the bull run in the 1990s. But slower economic growth and lower returns mean South African investors should be prepared to save more than they saved in the past. This is another good reason to make the most of the available tax-concessions and save as much as you possibly can.

Your bonus will qualify as non-retirement savings and you can contribute the greater of 15percent of your non-retirement funding taxable income, or R3500 less your allowable pension fund contribution, or R1750 tax-free to an RA.

Any additional payments (over the applicable tax concession used) may be carried forward and offset against future taxable income.

Other advantages of investing in an RA include:

lRA contributions that do not qualify for a deduction now can be used to increase the tax free portion of the lump sum at retirement;

lThe recent tax changes regarding retirement fund lump sums result in the first R900000 lump sum from retirement funds being taxed at an effective rate of 15percent;

lAlong with the income tax benefits, an RA is not subject to Capital Gains Tax;

lRA's are protected against creditors and insolvency in terms of the Pension Funds Act.

"The secret of a comfortable retirement is planning and saving. Make the most of your retirement savings and speak to your financial adviser to ensure that you do not get caught off-guard. A financial adviser will help you with a holistic financial plan to meet your financial needs now and in the future in the most tax efficient way," said Mupita.

lThe writer is managing director of Retail Affluent at Old Mutual.